Affordable Disaster Protection

A few years back, I received an unexpected knock on the door late one Friday afternoon. The polite stranger standing there simply said, “This is for you” as he handed me a piece of paper and then walked away. It took me a moment to realize what I was holding: a legal subpoena.

I’d been served.

This was completely unexpected and caused, I’m not ashamed to admit, a considerable degree of freaking-out on my part until I learned why it happened. As it turned out, someone in town whom I barely knew was involved in an ugly, protracted court dispute and his legal team hoped my testimony might help his case. (Why they didn’t simply call me first to assess if this was indeed true is a mystery to me…)

So a few weeks later I had the pleasure of spending an afternoon being deposed by lawyers regarding a matter I knew nothing about. I didn’t realize there were so many different ways I could be prodded to say “I have no idea” and “I don’t know”.

And I’d say the experience was a colossal waste of my time; but right at the end, I received a pearl of advice that made the ordeal worth it.

As I was leaving the law office, one of the lawyers involved in the deposition came up to me and apologized for my having been summoned. “This case is a complete cluster”, he said. “And it was all so avoidable.”

“Look,” he said. “You seem like a nice guy. The lesson to take from all this is to make sure you have sufficient protections in place, for your family and your business. A little foresight to line up the right kinds of insurance and legal structures can easily defend you from shitshows like my client is now going through because he didn’t prepare.”

I took that advice as a nudge from the universe to review my insurance and estate planning situation with my professional advisors. And I’m glad I did, as we made several changes/upgrades as a result.

I encourage everyone who hasn’t done the same in the past few years to use this article as a motivation to do so soon, too.

Umbrella Insurance: A No-Brainer For Most

Now, most everyone is familiar with the basic forms of insurance: homeowners/renters, auto, life and health. But I want to highlight a specific type of liability insurance that’s curiously under-owned.

Excess liability insurance — more commonly referred to as “umbrella” insurance — extends the liability protection of your homeowners/renters & auto insurance policies, often by a lot.

Basically, its purpose is to pay for legal and damages costs should you get sued for any incident that you or a member of your family (including your pets) are involved in.

Most home and auto insurance policies are capped in terms of how much they’ll pay out in response to a liability claim. The average homeowners policy is written to cover damages of up to $300,000; and the average auto policy pays out up to $100,000 per person and $300,000 total per accident.

Adding an umbrella policy into the mix raises these potential payouts anywhere from one to $10+million.

Why own it?

Umbrella insurance is for “tail risk” events. These are the accidents/tragedies you hope never happen in life, and their probability of occurring is low. But, should they happen, their potential cost can be very high — especially if serious injuries or fatalities are involved. In those circumstance, legal settlements can quickly mount into the millions of dollars.